How Medical Bills Impact Your Credit Score

Medical bills and credit report

Written By. Pat Palmer

Medical bills have the potential to wreak absolute havoc on a person’s credit. Large amounts of debt, medical or otherwise, have a long history of demolishing credit scores and taking away financial freedom.

Given the often unexpected and sudden way in which medical bills can hit credit reports, this type of debt can be especially damaging. Unlike credit cards and other debt, medical bills are not built up slowly and there is no spending limit, so the potential for large-scale damage is much greater.

According to Anthony Sprauve, a MyFico.com spokesman, accounts in collections can lower an individual’s FICO score by up to 100 points. If you have ever tried raising your credit score, you can attest to how hard it is to raise it by as few as 10 points. Imagine trying to recover from a 100-point hit.

Those with the highest credit scores definitely have the most to lose as far as credit worthiness, and they are the ones who usually see the largest dings as a result of collections.

Even after the bill is paid in full, the item remains on a credit report for seven years. Although the impact of the collection on your credit score will diminish as the collection gets older and will eventually “fall off,” medical bills can cause quite a stir in your finances by limiting your credit opportunities. As a result, you might only qualify for high-interest, high-fee loans and credit cards.

Medical bills are the number one reason for filing bankruptcy in the U.S. Adding insult to injury, bankruptcy can stay on a credit report for up to a decade, three years longer than a negative credit rating due to a debt collection.

Medical bills and credit report

A lender will determine how much to lend you based on your credit score. Varying opinions exist on the ideal percentage of credit utilization. However, let’s assume that the ideal goal for percentage of available credit is 30 percent or less.

According to this figure, you should not have a balance of more than $3,000 if you have a $10,000 limit on a credit card. If you have the aforementioned $10,000 of available credit, but a $15,000 medical bill gets reported to your credit report, you will be in debt $5,000 more than you have been officially allotted.

This is a red flag alerting lenders that you live beyond your means. This may not sound fair since your high debt is not due to frivolous spending, but sadly, it is the truth in many situations.

Some lenders do their own calculations, removing medical debt from the equation because they believe that medical debt is usually incurred out of necessity rather than poor spending habits. Therefore, these lenders might be more willing to take the risk of lending money as long as the credit report is otherwise healthy.

Because some lenders have chosen to be flexible about the presence of medical collections on a credit report, and there hasn’t been much backlash or a notable number of companies reporting remorse for extending credit to these individuals, it raises the question of why any credit scoring model would take medical bills into consideration.

Of course, there are people who could pay their medical bills and don’t, but can a score damaged from a one-time incident involving one’s health be a true indicator of whether or not a person is financially responsible?

Unfortunately, about 80 percent of all medical bills have some type of error on them, whether from double billing, abuse, inflated charges, or billing for services that were not received. Improper reimbursement from a patient’s health insurance company accounts for a large amount of billing errors. These instances only drive up the cost of your bill, further impacting your score via collections and credit utilization ratio.

One good thing is that, with the latest system of FICO credit scoring, collections under $100 will no longer be considered when calculating

a credit score. This will eliminate the negative impact of nearly one third of medical debt from affecting FICO scores. The other two thirds, however, will still make their negative marks.

The new Vantage Score system is a potential method of relief for consumers who are making payments on a medical bill. Created by the three major credit bureaus, TransUnion, Equifax and Experian, VantageScore offers a unique algorithm that better represents today’s consumers, offering numerous updates to the old systems of credit calculation.

Medical bills and credit report

Under the newest version of this system, called VantageScore 3.0, medical debt cannot contribute to a credit score unless that debt has been given to an outside collection agency.

If passed, a new law will soon assist in lifting some of the burden. Under this proposed regulation, collection agencies cannot report negative scores to the credit bureaus for six months if the consumer is disputing or negotiating the bill.

This is a great solution for anyone who feels their bill is inaccurate, believes the insurance company paid less than they should have or who might qualify for any type of financial assistance. After all, the system of calculating a credit score neither knows nor cares whether or not a charge is valid and what the consumer is planning to do about it.

This law would keep the consumer’s credit report clear of this debt until a reasonable amount of time has been given to the consumer to fix any errors.

There are steps you can take to minimize the chances of having a medical bill negatively affect your credit score. Because of the large number of medical billing discrepancies, be sure to keep detailed records on all services, procedures and supplies you received as well as the names of doctors who treated you.

This will give you a jump-start on double-checking each charge’s validity. Often, medical bills do not arrive right away, and without accurate records, it may be difficult to discern valid from invalid charges.

If you receive a bill with charges for medications, services or procedures that you don’t remember, you can easily pull out your records and compare them with the bill. Place a check mark on any charge that does not seem correct.

Call the billing department immediately and question the validity of the charges in question. Keep asking for help from the billing department until you fully understand and agree with the charges.

The sooner these potential inconsistencies are taken care of, the better, since your prompt response will alert them that you have kept meticulous records and refuse to be overcharged.

Furthermore, they are already well aware of the high number of inaccuracies that occur in medical bills and may be more likely to work with you before the debt is sent to collections.

Communicate With Debt Collectors

Stay in constant contact with the billing department. A debt collection agency could begin reporting negatively to the credit bureau between one and six months after the first billing date.

If there are any questions or perceived discrepancies, stay in communication with them. This tells them that you are diligent and are working on it. If they know that you are not avoiding them but simply questioning the validity of some of the charges or having a hard time coming up with the funds, it might help prevent a negative report to the credit bureau.

It is much easier and often more cost effective to prevent a problem before it starts. It is clearly easier to keep bad marks off of your credit report than it is to remove them once they have been reported.

Whether medical bills should show on a credit report has been a subject of debate for quite some time. Many consumer advocates believe that unpaid medical bills are not a reliable indicator of a person’s credit worthiness but simply a sign that he or she had an expensive medical issue at some point within the past seven years.


How to Remove Medical Bills From Your Credit Report

Medical expenses can often be outrageous, regardless of whether you have medical insurance. Most often, medical providers turn over unpaid medical expenses to collection companies with the intention of obtaining payment from you. Medical providers, as well as collection agencies, will report the unpaid medical expenses to your credit report. These collection accounts will negatively affect your credit score and hinder your ability to obtain credit.

Contact the medical provider that you owe and request a payment for deletion. They may request a one-time payment from you, and on receipt of payment, they will remove the account, as well as any collection account associated with the unpaid debt, from your credit report. While you could pay third parties to make a payment-for-deletion agreement for you, you can save yourself some money by drafting the letter yourself. The agreement must be in writing and signed by yourself and the medical provider.

Make payment arrangements with the collection agency. Contact the medical provider or collection agency and inform them that you want to pay the debt. You may be able to pay a lump sum settlement or arrange regular payments. You will need a signed settlement agreement from the collection agency. Once you have remitted payment, you can submit it to the credit bureau agencies to update your credit report if the collection agency does not do so. After the debt shows paid on your credit report, you can submit an electronic dispute with the credit bureaus by visiting the websites of Equifax, Experian and TransUnion to have the debt removed.

Hire a credit repair service. If you can't make any form of payment toward the debt you can hire a credit repair service, which is a service that seeks to improve your credit score by removing collections, public records and charge-offs. You may know of a credit repair company in your neighborhood. If not, you may ask a friend for referrals or check the Internet to find a service.


medical bills and credit report

My question is what more can I do to ensure this doesn't happen again.

Credit monitoring services can be helpful at detecting things like this early, but they can't actually prevent them, clerical errors will persist.

Shouldn't the hospital be penalized for ruining my credit over this 7 month period. I never received bills from them for the outstanding balance and don't think this is fair.

Did your temporary poor credit cause any harm? There have been a number of judgments against companies that have wrongfully damaged an individual's credit score. If you were denied a loan, or stuck with a higher interest rate due to this error, then you might have a pretty strong case against the hospital. There are even cases where just the loss of credit was deemed enough to warrant compensation, but I'd imagine they are less likely to be won.

I'm guessing it's not worth pursuing compensation unless you had some situation in the last 7 months that clearly cost you more due to your credit score, but that's for you to decide.

Medical bills and credit report

The hospital has done what they can do in terms of repairing the damage; 30 days is reasonable given reporting frequency. No permanent harm has been done in terms of your credit. Further, since this is a medical collection, it didn't do a whole lot of damage in the first place; many credit scoring algorithms do not consider medical collections at all or nearly as much as they would consider non-medical collections, as they are not particularly predictive of future performance.

As far as penalties; probably not, as this seems like it was an honest mistake on their part. If you didn't apply for credit during this time, no real harm has been done. If you did apply for credit, were turned down, and suffered some specific harm as a result (such as lost a deposit on a house), you could consider suing in small-claims court for that specific harm.

Unfortunately, the only thing you can do to ensure that this doesn't happen again is to go over all paperwork and ask the clarification questions at the time it happens. Meaning, if your son has to have surgery again, go over the paperwork with the billing department to ensure that everything is correct.

The good thing is that the hospital has acknowledged that the error is on their part and they will write to the credit bureaus to correct the error - either update or delete. This will then reverse any damages and negative impact related to that particular account and only that account for this particular incident

The Federal Trade Commission has more information on disputing and correcting errors on credit reports.

What's not fair? You contacted the hospital. They admitted to a mistake, and it's going to be remove from your credit report, as you have asked. The hospital is not the credit bureau, and they don't govern the policy by which incorrect information is removed. If you want it done faster, you've got about a ton of red tape toward getting legislation passed to change the policies of the Federal Trade Commission, which is the policy-maker here in the U.S.

Let's think this through. Would it be fair to penalize businesses, or people, for every time they've ever made a mistake? Have you never made a mistake? In a court of law, you can sue for so-called punitive damages but genuine mistakes (lacking malicious intent) don't really apply. You could sue for damages, but you'd have to show actual, material consequences of their mistake. I'm not a lawyer, but it doesn't seem you'd have much to go by.

That said, if the hospital's done as they should, the entry should drop off within 30 days, and you can go on like this whole thing never happened. As far as the future is concerned - stuff happens! Live your life one day at a time.


Medical Bills On Credit Report

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Medical Bills On Credit Report

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Medical Bills On Credit Report - How To Remove Medical Bills From Credit Report

Medical bills and credit report

Great info thank you!

Medical bills and credit report

If Debt forgiven. Does it stop being reported thus boost my credit score?

Medical bills and credit report

I called I said i wanna settle and they told me no

Medical bills and credit report

What if i already have begin making payments on an old debt, but then learn they do not have proof I owe this? They said once i begin making payments, my dispute is not valid..

Medical bills and credit report

Wow, thank you so so much for this video. I called wanting to pay they told me I owed more, asked for debt validation just to make sure. I owed less due to some credits on other accounts, then asked for a settlement and paid even LESS! Thank you !

Medical bills and credit report

I just got FUCKED. I saved 20,000 in my life, paid off a whole truck, always have been on time, and a medical bill for $200 I didn#39;t know I had was sent to collections and I never got a phone call and it dropped me from Excellent to Poor and now I have a dream of owning a home and it raised my interest and PMI rate. FUCK THE SYSTEM. $200 oversight costs me THOUSANDS in increased interest.

Medical bills and credit report

Clarification PLEASE.. Do I send letters to the Credit Burreau#39;s?? such as: TRANSUNION, EQUIFAX, EXPERIAN. -OR- the annoying credit agencies that bought out my debt??

Medical bills and credit report

This is true, many medical billing companies nowadays let your credit company know about this. I was charged with a medical billing from CMRE, but instead of holding it off for a while, they notified me right away and I was able to pay it off with having it affect my credit score.

Medical bills and credit report

What if i already made my first payment? they supposed to sent me a letter via mail with all the info and details but soon is about to be a month never received anything :/ they gonna call me anytime this week for the second payment :/ what to do what to do .

Medical bills and credit report

How do they guarantee that they will stop reporting it if you settle and pay? You just take their work for it?

Medical bills and credit report

I like your enthusiasm. Has anybody tried the advice he gave? Did it work?

Medical bills and credit report

Why is this bug eyed guy giggling so much?

Medical bills and credit report

some say send letter to credit bureaus and some say send letter to collection agencies. .what is what.. I#39;m lost

Medical bills and credit report

Texas stature of limitations is 4 yrs

Medical bills and credit report

Medical bills can be tricky. There is a new law that says if you pay medical bills in full instead of settling, they will not put satisfed on your credit report and you can dispute it after. I wonder has anyone tried it.